Australia has slowest quarterly growth in 4 years

VeraSprothen

SYDNEY--Australia posted its slowest quarterly growth in four years in the second quarter, as a fading mining-investment boom and falling export revenue continued to put a brake on the economy.

The resource-rich country's gross domestic product climbed by 0.2% from the first quarter and rose by 2% from a year earlier, government figures published Wednesday showed, the weakest quarterly performance since March 2011, when heavy floods along Australia's east coast caused the economy to shrink by 0.4%.

The weak quarterly outcome was only half of what economists expected on average, causing the Australian dollar to briefly dip below US$0.70 for the first time in more than six years following the data. In the first quarter, the economy grew by 0.9% compared with the final three months of 2014.

A string of disappointing economic data in recent days--including numbers showing that businesses across the board are curbing their spending plans, and a surprisingly large fall in net export volumes--had already prompted several economists to downgrade their growth estimates, with some even predicting a negative GDP reading and warning a recession may be imminent.

Following Wednesday's data, several economists said it was likely that the Australian central bank would cut interest rates again this year, from an already record-low 2.0%, to stimulate the sluggish economy.

"Australia's growth slowdown could bring rate cuts back on the agenda," said Daniel Martin, a senior economist at Capital Economics in Singapore. He said the sharply lower result challenged the central bank's own growth forecasts of 2.25% in 2015 and 2-3% in the year through June next year. "There is now a serious risk that those forecasts will prove overly optimistic," Mr. Martin said.

The Australian central bank left rates unchanged at its policy-setting meeting Tuesday. The bank made little mention of the economic slowdown and market turmoil in China, Australia's biggest trade partner.

However, it could be forced into action as the economy continues to struggle to find new sources of growth as a resources boom that has powered growth for the past decade slows, said Chris Caton, chief economist at BT Financial in Sydney. "The Reserve Bank declined to move yesterday, and will continue to be an unwilling cutter from now on. Today's news adds to the pressure for another move, however," Mr. Caton said.

Australia has ridden one of the longest economic expansions in modern history--a run of 96 quarters without a recession, which is commonly defined as two straight quarters of economic contraction.

Morgan Stanley analysts earlier this week warned that the country was at risk of sliding into recession in coming months, as regulators have begun to cool an overheating housing market by introducing tighter lending standards--a move that is set to dampen consumer confidence and construction activity and would be aggravated by the regional spillover from a slowing Chinese economy, they said.

"Whilst the lower Australian dollar is providing some offset through tourism and education exports, the outlook remains fragile with further job losses in the manufacturing industry still to come," said Chris Nicol, a Melbourne-based macro strategist at Morgan Stanley.

Mr. Nicol said that unless the federal government provided more public infrastructure stimulus, the central bank will likely cut rates to 1.50% by June next year.

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